From Niskanen to behavioural agencies

Today I taught my last class on Public Economics of this course, a great pleasure. I finished by talking about the behaviour of bureaucracies and the productive efficiency of public agencies. In the current syllabus, the analysis of public organizations stills centres around the contribution by Niskanen more than 40 years ago. Niskanen, in the Public Choice tradition, reached the conclusion that the public sector was too large because bureaucrats had the objective of maximizing budgets. Very early, some critics such as Migué and Bélanger, although sharing the idea that public servants were not necessarily concerned by social welfare, argued that budget maximization was an extreme case, and that their preferences could include many other considerations. As Stanford's political scientist Terry Moe explains in the "Handbook of Organizational Economics", a lot of research has been done since then, and today we have a very rich theory of public organizations, where agencies interact with legislators and interest groups, and their motivations may include both extrinsic and intrinsic incentives (some of them altruistic and well-intentioned). The latter are not the only departure from "homo economics", as it is well recognised that public agents may also fail to optimise (thus behaving in a satisficing or adaptive way) and may judge and decide with the same heuristics and biases that everybody else uses. Our syllabus needs some updating.